O Rosenberg! Stock buyers should stand for Canada

David Rosenberg hasn’t turned bullish on U.S. stocks, but the influential market strategist does like their neighbors to the north.

Canadian stocks trade at around a 50% discount to the Standard & Poor’s 500 Index
/quotes/zigman/3870025SPX, Rosenberg, chief economist at Toronto-based investment manager Gluskin Sheff + Associates Inc., told clients in a research note on Wednesday.

“The valuation differences between many Canadian and U.S. sectors” are “glaring,” Rosenberg noted. On a price-to-earnings-growth basis, or PEG ratio, the S&P 500 is at 1.5, or about 50% higher than Canada’s benchmark TSX Index
/quotes/zigman/20942CA:ISPTX.

For example, Canadian energy companies as a group command less than half of the valuation of their U.S. counterparts, while materials and industrials shares are priced at about a 40% discount. Staples are expensive in both markets, Rosenberg pointed out, but the PEG ratio in Canada is 1.7 and in the U.S. it is 2.5.

As for the attractiveness of S&P 500 sectors, Gluskin Sheff updated its ratings based on dividend yield, dividend growth, valuation, earnings per share growth and the direction of earnings revision ratios. The top three: technology; health care and financials. Most improved: consumer discretionary; energy and materials. Heading lower: telecom; consumer staples and industrials.

Rosenberg continues to emphasize investment themes that reflect an anemic global economy still awash in too much debt. His “safety and income at a reasonable price” (SIRP) strategies include consumer frugality, such as discount stores, capital preservation, namely high-quality corporate and government bonds, dividend-growth stocks, and food and other products for the budding middle class in emerging markets.

– Jonathan Burton

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